HFT 4464HFT 4464

Exam 2 ReviewExam 2 Review

Exam 2 Covers the Following Exam 2 Covers the Following ChaptersChapters

Chapter 5Chapter 5• Time Value of MoneyTime Value of Money

Chapter 6Chapter 6• Fixed Income SecuritiesFixed Income Securities

Chapter 7Chapter 7• Common StockCommon Stock

All ChaptersAll Chapters

VocabularyVocabulary• ExamplesExamples

IndentureIndenture Par ValuePar Value Amortization ScheduleAmortization Schedule Senior / Junior; Subordinated / Senior / Junior; Subordinated /

UnsubordinatedUnsubordinated PerpetuitiesPerpetuities AnnuitiesAnnuities Cumulative Preferred StockCumulative Preferred Stock Common Stock FeaturesCommon Stock Features

Bond Market Rate vs. Coupon RateBond Market Rate vs. Coupon Rate

What is the relationship ?What is the relationship ?• Market Rate > Coupon RateMarket Rate > Coupon Rate

Bond Value is ? Par Value Bond Value is ? Par Value

• Market Rate = Coupon RateMarket Rate = Coupon Rate Bond Value is ? Par ValueBond Value is ? Par Value

• Market Rate < Coupon RateMarket Rate < Coupon Rate Bond Value is ? Par ValueBond Value is ? Par Value

ProblemsProblems

Future value of a lump sum investmentFuture value of a lump sum investment• Table p.91Table p.91

Present value of a lump sum paymentPresent value of a lump sum payment• Table p. 93Table p. 93

Future value of a series of payments madeFuture value of a series of payments made• Table p. 96Table p. 96

Present value of a series of payments receivedPresent value of a series of payments received• Table p. 102Table p. 102

ProblemsProblems

Yield to maturity of a bondYield to maturity of a bond• Based on purchase priceBased on purchase price• Includes zero coupon bondsIncludes zero coupon bonds

Value of preferred stockValue of preferred stock V = D / IV = D / I

Common stock value based on Common stock value based on dividend growthdividend growth

ProblemsProblems

Bond Valuation (Chapter 6)Bond Valuation (Chapter 6) Bond Yield to MaturityBond Yield to Maturity Valuing Common Stock based on Valuing Common Stock based on

dividend growth ratesdividend growth rates Calculating a PaymentCalculating a Payment Common Stock Value for a 1 Year Common Stock Value for a 1 Year

Holding PeriodHolding Period

Other ItemsOther Items Copies of present / future values will be required and Copies of present / future values will be required and

provided. You do not need to bring your textbook or table provided. You do not need to bring your textbook or table copies.copies.

Bring your own calculator!!! There will be none Bring your own calculator!!! There will be none provided !!! Cell phones may not be used. provided !!! Cell phones may not be used. Calculators may not be shared during the exam. If Calculators may not be shared during the exam. If you do not have one, you will need to return your you do not have one, you will need to return your exam & wait until you can borrow one! The exam still exam & wait until you can borrow one! The exam still must be completed in the allotted time ( 6:00 to 7:15 must be completed in the allotted time ( 6:00 to 7:15 pm)pm)

You may use a financial calculator if you have one.You may use a financial calculator if you have one. Scratch paper will be provided & must be turned in with Scratch paper will be provided & must be turned in with

exam.exam. Scantron form 2052 (brown) must be used! Failure to do so Scantron form 2052 (brown) must be used! Failure to do so

may result in a delay in providing exam results. Bring your may result in a delay in providing exam results. Bring your own forms. Extras will not be available!own forms. Extras will not be available!